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Haiti: Risk Assessment

Country Risk Rating

D

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.

Business Climate Rating

D

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.

Strengths

Massive international solidarity following the 2010 earthquake and the 2012 hurricane

Development and reconstruction programs defined with lenders

Membership of various regional organizations (Association of Caribbean States, Organization of American States, CARICOM, CARIFORUM)

Active support of Venezuela through PetroCaribe program

Weaknesses

Low level of development and extreme poverty (ranked 168th out of 187 on the Human Development Index)

Highly vulnerable to natural disasters (earthquakes, hurricanes...)

Infrastructures deficit

Political instability and insecurity

Energy dependence (oil)

Dependence on migrants' remittances and international aid

Governance and business climate shortcomings

Current Trends

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Modest growth sustained by international aid and vulnerable to climate shocks

In 2015, Haitian growth was hit by a severe drought, as well as declining public investments due to the political and social instability surrounding the elections. Growth is expected to pick up slightly in 2016, driven by US growth which enhances export income (83% of exports are to the United States) and by domestic demand, thanks to the scale of migrants' remittances. On the other hand, better harvests are likely to boost the agricultural sector (20% of GDP) and increased international aid will stimulate the construction sector through the financing of investment projects. The country will benefit from another Extended Credit Facility from the IMF aimed at reducing Haiti's vulnerability to external shocks and supporting the country's reconstruction policy by addressing the infrastructure gap (roads, education, health). Nonetheless, growth is still very vulnerable to weather conditions and will continue to suffer from a very difficult business climate, made worse by socio-political tensions.

After rising sharply in 2015 due to a surge in food prices and the depreciation of the gourde, inflation is likely to rise still further in 2016. The dollar's ongoing strength against the gourde will continue to fuel imported inflation (imports represent 70% of the basket of goods). The ban on 23 products imported from the Dominican Republic will contribute to shortages of food, the prices of which are still subject to weather conditions.

Public and current account deficits dependent on international aid

Under the IMF program, progress has been made on fiscal consolidation resulting in a marked drop in the deficit in 2015. However, it will persist because of the government's difficulty in collecting the taxes needed to finance irreducible public spending to boost the country's economic and social development. Spending will also remain high because of the national electricity company's deficit (EDH) and public energy subsidies. The country is, therefore, highly dependent on the goodwill of donors and international funders. The IMF's renewal of its Extended Credit Facility in 2015 for a sum of USD 69.7 million should partially finance the public debt in 2016. The worsening Venezuelan macroeconomic situation will, nevertheless, affect the concessional loans awarded under the PetroCaribe program, representing 87% of the country's external debt.

The current account deficit will continue to decline on the back of dynamic exports, thanks, in particular, to activity at the Caracol industrial park and US growth. Accordingly, the textile industry is expected to benefit from preferential access to the US market under the HOPE II agreement (exemption of customs duty on textile products until 2018). Moreover, moderate commodity and energy prices will reduce the burden of imports, which is still heavy because of irreducible demand (oil, food). The balance of transfers surplus through international aid and migrants' remittances will help to partially offset the trade deficit.

Many challenges for the new president

2015 was marked by violent protests following the accusations of fraud during the first round of presidential elections in October 2015 by the ruling party's candidate, Jovenel Moise. They led the Provisional Electoral Council to postpone the second round of the presidential elections, normally held on December 27, 2015. The political instability and social unrest created by the elections will persist until a new President is invested. The highly fragmented Haitian political scene, confirmed by the results of the elections to the parliament and senate, suggests that the new president will not have a parliamentary majority and will have difficulty in implementing nonetheless crucial economic and social reforms. Faced with the slow execution of rehousing policies and the rising cost of living, very violent protests continue and are reinforcing the precariousness of the security situation. In response to this unstable political and economic climate, the United Nations has decided to extend its Stabilization Mission (Minustah) until October 2016 to facilitate the process of political transition and reconstruction. By contrast, the Mission has frequently been criticized by local people (complaint filed against the UN for poor sanitary practices at the origin of a cholera epidemic) who want the UN out. In an already critical business environment (182nd out of 189 in the World Bank's Doing Business 2016 rankings), a calmer political and social climate is desirable so as to favor the flow of international aid. Diplomatically, difficult relations with the Dominican Republic, complicated since the ruling by the Dominican Republic's Constitutional Court in 2013 to refuse Dominican nationality to the descendants of Haitian migrants "in transit" born since 1929 (making tens of thousands of individuals de facto stateless), are expected to continue. Haiti has even decided to ban the import of 23 products from the Dominican Republic.